Key Insights
Stablecoins are designed to maintain a fixed value by being pegged to stable assets like fiat currencies or commodities.
They provide benefits like price stability for transactions and savings, as well as fast and cheap transfers.
Stablecoins are also great for hedging against market volatility, and allow traders to quickly "park" funds.
Top stablecoins include Tether (USDT), USD Coin (USDC), First Digital USD (FDUSD), Dai (DAI), Ethena USDe (USDE) and PayPal USD (PYUSD).
One of the hallmarks of the crypto market is volatility. The market is known for unpredictability and massive price swings from Bitcoin to the altcoin market.
Because of this, while this volatility can be very rewarding at times, it can sometimes get hard to make one’s way through the market.
This is where stablecoins come in. These assets are invulnerable to the market’s ups and downs, and they have become more important for the average investor than ever.
Here’s a look at what stablecoins are, how they work and which stablecoins are the most popular in the market today.
What Are Stablecoins?
Stablecoins are like regular cryptocurrencies. However, instead of rising and falling in price like their sibling assets, they are designed to maintain a fixed value.
Stablecoins are typically pegged to stable assets like fiat (the dollar, Euro, etc) and other commodities like gold or even oil.
For example, Tether’s USDT is pegged to the US dollar. This means that 1 USDT is designed to always equal $1 USD.
This makes stablecoins a lot unlike Bitcoin or Ethereum, which fluctuate based on market demand and investor sentiment.
Stablecoins were created to offer consistency and are one of the best bets for payments, savings and trading.
What Are the Benefits of Stablecoins?
Stablecoins have become very important in the crypto space because of several advantages they offer.
Price Stability
This is one of the biggest features that stablecoins offer.
They eliminate the price swings that are common with other cryptocurrencies, and are therefore suitable for everyday transactions, savings and planning.
Fast and Cheap Transactions
Stablecoins use blockchain technology to allow their users near-instant transactions. This can be a lifesaver, especially when compared to regular banking systems.
Anyone can send value via stablecoins across the globe in minutes, and even bypass middlemen altogether.
Worldwide Accessibility
Anyone with an internet connection and a crypto wallet can use stablecoins, regardless of their location. This is especially important for users in developing countries or regions with unstable local currencies.
Hedging Against Volatility
Traders often use stablecoins to "park" their funds during periods of high market volatility.
Instead of converting crypto back to fiat (which can be slow), they can quickly switch into a stablecoin until a new opportunity arises.
Top 6 Stablecoins To Be Aware Of
The stablecoin market has changed by a great deal over the last few years. However, several names have shown up as market leaders, especially this year:
Tether (USDT)
Tether is easily the most widely used and traded stablecoin in the world. Despite the issues about its reserves in the past, USDT has maintained its position as a main player in the stablecoin space due to its liquidity and availability on most exchanges.
USD Coin (USDC)
USDC is issued by Circle and supported by Coinbase. The stablecoin is second most popular after Tether, and is known for being transparent with a great deal of regulatory compliance.
Circle publishes monthly reserve attestations and is widely used in both consumer apps and DeFi protocols.
First Digital USD (FDUSD)
This stablecoin is quickly becoming very popular, especially within the Binance platform.
FDUSD is a fiat-backed stablecoin managed by First Digital Group. It is focused on regulatory alignment and has gained quite some traction, especially in Asian markets.
Dai (DAI)
In terms of decentralized stablecoin, DAI is the most popular. It is governed by MakerDAO and is backed by a mix of crypto assets. DAI has been a great choice for users looking for a censorship-resistant alternative to USDC and USDT.
Ethena USDe (USDE)
USDe is a synthetic stablecoin backed by delta-hedged crypto assets. It offers scalability, censorship resistance and even yield opportunities for users.
While USDE is still relatively new compared to other stablecoins, it has quickly become very popular thanks to its special design.
PayPal USD (PYUSD)
This stablecoin was launched by PayPal, and commands effortless mainstream adoption because of PayPal’s brand and global user base.
In the future, PYUSD could play a big role as the bridge in the gap between trad-fi and crypto payments.
Why Stablecoins Are Here to Stay?
Stablecoins have come a long way from being a mere niche product.
They have quickly become a major part of the crypto space and have become as reliable and fast as ever.
Whether you're trading, saving, sending money or dabbling in DeFi, stablecoins offer some of the best kinds of stability and ease that other cryptocurrencies lack.
